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From: "Loren Morlan"
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Date: Tue, 8 Mar 2011 11:06:57 -0500
Subject: RE: [MT_E and I] NASDAQ 3/7/11, DAILY, PRICE IN WAVE 3 OF EW CORRECTIVE PATTERN
Reply-To: MetaTrader_Experts_and_Indicators@yahoogroups.com
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------=_NextPart_000_00D7_01CBDD80.F20DBC90
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RSI(14).=20=20
=20
I never attempt to trade wave 1 in the daily period which is not to say tha=
t it cannot be done. Wave 1 cannot be conclusively established until it fo=
rms a fractal at its low as shown in the chart. Thus Wave 1 must be fully =
complete before I am able to recognize that fact in the daily period. Howe=
ver, Wave 1 is presently underway in the next larger period, weekly and I w=
ill trade that larger wave 1. Wave 1 in the weekly is examined and followe=
d in the daily period. In this respect price and RSI have completed wave 1=
and 2 and is presently tracing wave 3. After waves 3, 4 and 5 in the dail=
y are complete in the daily period this will conclusively establish the low=
of wave 1 in the weekly. These are the bigger waves which are lower risk =
to trade.
=20
A bit confusing perhaps but the way RSI/price must be examined and followed=
to accurately understand future price action. RSI/price action in the dai=
ly are always tracing some part of the next larger weekly EW cycle.=20
=20
Having stated the above it is possible to trade wave 1 in the daily but to =
do so requires use of lower time periods and a much more complicated method=
to trade this typically very short wave 1. As a practical matter it just =
isn=E2=80=99t worth the effort or risk to do so.
=20
Loren
=20
From: MetaTrader_Experts_and_Indicators@yahoogroups.com [mailto:MetaTrader_=
Experts_and_Indicators@yahoogroups.com] On Behalf Of Brian Kett
Sent: Tuesday, March 08, 2011 2:41 AM
To: MetaTrader_Experts_and_Indicators@yahoogroups.com
Subject: Re: [MT_E and I] NASDAQ 3/7/11, DAILY, PRICE IN WAVE 3 OF EW CORRE=
CTIVE PATTERN
=20
=20=20
Loren,
One more question, pls. How do you identify the wave 1?
Brian
_____=20=20
From: Brian Kett
To: MetaTrader_Experts_and_Indicators@yahoogroups.com
Sent: Tue, March 8, 2011 8:22:08 AM
Subject: Re: [MT_E and I] NASDAQ 3/7/11, DAILY, PRICE IN WAVE 3 OF EW CORRE=
CTIVE PATTERN
=20=20
Loren,
That's interesting and nice identifying the wave 3 with RSI. Are you using =
the std. RSI (14)?
Brian
=20
_____=20=20
From: Loren Morlan
To: Divergence@yahoogroups.com
Sent: Tue, March 8, 2011 12:38:13 AM
Subject: [MT_E and I] NASDAQ 3/7/11, DAILY, PRICE IN WAVE 3 OF EW CORRECTIV=
E PATTERN
=20=20
Attached daily chart traces RSI left shoulder and head of an upright head a=
nd shoulder price pattern. Highest RSI value always located Wave 3 high, L=
S. There is always a RSI CND between the LS and Head.=20=20
=20
Wave 5 price fractal high met resistance at Fibonacci extension 1.902, whic=
h also coincided with a long developing bearish crab price pattern traced i=
n light yellow. Yes, price patterns are important with respect to their pr=
edictive implications. Also at this high RSI traced the required CND menti=
oned above. These are objectively established facts which conclusively id=
entifies wave 5 high.=20
=20
One of the issues which is not conclusively established at this time is whe=
ther corrective wave 1 (blue) is an impulse wave having 5 waves or a correc=
tive wave having three waves. I have examined wave 1 using the 15 minute =
period RSI and believe, although I am not positive, price and RSI traced an=
d impulse 5 wave pattern. (I am confused and uncertain by a truncated wave=
5.) This issue is very important because it tells the analyst the type pa=
tterns which will later be traced by price and RSI. If for example wave 1=
was a 3 wave corrective pattern then later larger waves will also trace th=
e same 3 wave patterns. In this case it is my opinion at this time that p=
rice and RSI will trace the typical 5 wave pattern lower to Wave A low. =
In any case future waves will more clearly establish whether price is in fa=
ct tracing a 5 or 3 wave cycle. This issue will be later resolved.=20=20
=20
I have previously posted a =E2=80=9Ccheat sheet=E2=80=9D which describes th=
e various corrective patterns traced subsequent to wave 5 high. Only one o=
f the eight patterns traces an impulse 5 wave pattern, namely a ZigZag whic=
h is one of the more common patterns. However price and RSI may trace one =
of the other 7 patterns which are all introduced by 3 wave corrective patte=
rns, not 5 wave.=20
=20
I tentatively conclude that Wave 1 was impulsive (1st of 5) and have drawn =
future waves which constitute the full 5 wave cycle down to Wave A.=20=20
=20
Regarding Wave 2 (blue) this corrective wave is always a 3 wave price patte=
rn, a, b and c., that pattern can be better visualized in the 4 or 1 hour =
periods for those interested.
=20
The low of Wave A when conclusively established will introduce wave B which=
is always a 3 wave, a, b c pattern to its high. Wave B high will be the r=
ight shoulder high and there will be a CND between the left and right shoul=
ders. Wave B high will introduce Wave C typically the longest corrective w=
aves which may be extended as shown in the cheat sheet.=20
=20
RSI at Waves 3 and 5 both trace =E2=80=9CM=E2=80=9D above the RSI 70 line a=
nd each therefore suggest higher price. These are consistent with each Wav=
e high. Certainly in the case of Wave 3 high we may expect price to move h=
igher incident to establishing Wave 5 high. In the case of later =E2=80=9C=
M=E2=80=9D at small 5/5, this tells the analyst that price will probably es=
tablish an extended 5 which later occurred. RSI tracing =E2=80=9CM=E2=80=
=9D above its 70 line (grossly overbought) tells the analyst extreme buying=
pressure which most often results in later price highs. But like all gene=
ral rules not always. Where =E2=80=9CM=E2=80=9D occurs in the EW cycle as=
pointed out here is important with respect to higher price. The exact opp=
osite of these observations occur at lows and =E2=80=9CW=E2=80=9D below the=
30 line.=20
=20
Weekly chart traces an entirely different 5 wave impulse pattern to Wave 5 =
high and is further confirmation of that high in the daily.
=20
Comments;
I only trade equities using EFTs and am interested in the NASDAQ since it i=
s generally the leader of down or up cycles and thus use the charts for tha=
t purpose.
=20
Trades are based on conclusively established objective facts which documen=
t price/RSI location within the EW cycle. RSI measures the internal streng=
th or weakness of a security and therefore conveys the most valuable inform=
ation about price action.=20
=20
Wave one is almost always the most difficult wave to recognize in real time=
Why? Many traders erroneously believe Wave 1 is just a retrace in an =
ongoing price move higher or lower ( in this example higher). Those misgui=
ded bulls are buying waves a and c believing that price will exceed the p=
revious price high at Wave 5. Wave 1 often is not very long because the m=
istaken bulls aggressively buy that retrace. Once a fractal high in the =
daily period establishes Wave 2 high (3 wave only) bulls stop their efforts=
to force price higher and wave 3 begins in earnest.
=20
I assert that RSI and fractals are without any reasonable doubt the most ac=
curate and capable oscillator with respect to EW and divergences identifica=
tion in the hope that some analyst will challenge this contention. If I a=
m wrong in this respect I welcome others input. The only other indicator w=
hich does not violate the rule against multicollinearity is MACD when used =
with RSI.=20=20
=20
Loren=20
=20
=20
=20
------=_NextPart_000_00D7_01CBDD80.F20DBC90
Content-Type: text/html; charset=UTF-8
Content-Transfer-Encoding: quoted-printable

=20=20=20=20=20=20
=20=20=20=20=20=20

RSI(14).=C2=A0

I never attempt to trade wave 1 in the daily per=
iod which is not to say that it cannot be done.=C2=A0 Wave 1 cannot be conc=
lusively established until it forms a fractal at its low as shown in the ch=
art.=C2=A0 Thus Wave 1 must be fully complete before I am able to recognize=
that fact in the daily period.=C2=A0 However, Wave 1 is presently underway=
in the next larger period, weekly and I will trade that larger wave 1.=C2=
=A0 Wave 1 in the weekly is examined and followed in the daily period.=C2=
=A0 In this respect price and RSI have completed wave 1 and 2 and is presen=
tly tracing wave 3.=C2=A0 After waves 3, 4 and 5 in the daily are complete =
in the daily period this will conclusively establish the low of wave 1 in t=
he weekly.=C2=A0 These are the bigger waves which are lower risk to trade.<=
o>

=

A bit confusing perhaps but the way RSI/price must be examined and follo=
wed to accurately understand future price action.=C2=A0 RSI/price action in=
the daily are always tracing some part of the next larger weekly EW cycle.=

<=
o>

Having stated the above it is possible to trade wave 1 in the daily but =
to do so requires use of lower time periods and a much more complicated met=
hod to trade this typically very short wave 1.=C2=A0 As a practical matter =
it just isn=E2=80=99t worth the effort or risk to do so.

Attached daily chart tr=
aces RSI left shoulder and head of an upright head and shoulder price patte=
rn. Highest RSI value always located Wave 3 high, LS. There is =
always a RSI CND between the LS and Head.

Wave 5 price f=
ractal high met resistance at Fibonacci extension 1.902, which also coincid=
ed with a long developing bearish crab price pattern traced in light yellow=
Yes, price patterns are important with respect to their predictive =
implications. Also at this high RSI traced the required CND mentioned=
above. These are objectively established facts which conclusiv=
ely identifies wave 5 high.

=

One of the issues which is not con=
clusively established at this time is whether corrective wave 1 (blue) is a=
n impulse wave having 5 waves or a corrective wave having three waves=
I have examined wave 1 using the 15 minute period RSI and believe, =
although I am not positive, price and RSI traced and impulse 5 wave pattern=
(I am confused and uncertain by a truncated wave 5.) This iss=
ue is very important because it tells the analyst the type patterns which w=
ill later be traced by price and RSI. If for example wave 1 was=
a 3 wave corrective pattern then later larger waves will also trace the sa=
me 3 wave patterns. In this case it is my opinion at this time =
that price and RSI will trace the typical 5 wave pattern lower to Wav=
e A low. In any case future waves will more clearly establish w=
hether price is in fact tracing a 5 or 3 wave cycle. This issue will =
be later resolved.

I have previously posted a =E2=80=9Cc=
heat sheet=E2=80=9D which describes the various corrective patterns traced =
subsequent to wave 5 high. Only one of the eight patterns traces an i=
mpulse 5 wave pattern, namely a ZigZag which is one of the more common patt=
erns. However price and RSI may trace one of the other 7 patterns whi=
ch are all introduced by 3 wave corrective patterns, not 5 wave.

I tentatively conclude that Wave 1 was impulsive (1st of 5) a=
nd have drawn future waves which constitute the full 5 wave cycle down to W=
ave A.

<=
o>

Regarding Wave 2 (blue) this corrective wave is a=
lways a 3 wave price pattern, a, b and c., that pattern can be better=
visualized in the 4 or 1 hour periods for those interested.<=
o>

Th=
e low of Wave A when conclusively established will introduce wave B which i=
s always a 3 wave, a, b c pattern to its high. Wave B high will be th=
e right shoulder high and there will be a CND between the left and right sh=
oulders. Wave B high will introduce Wave C typically the longest corr=
ective waves which may be extended as shown in the cheat sheet.

RSI at Waves 3 and 5 both trace =E2=80=9CM=E2=80=9D above the RSI 70 line=
and each therefore suggest higher price. These are consistent with e=
ach Wave high. Certainly in the case of Wave 3 high we may expect pri=
ce to move higher incident to establishing Wave 5 high. In the case o=
f later =E2=80=9CM=E2=80=9D at small 5/5, this tells the analyst that price=
will probably establish an extended 5 which later occurred. RSI trac=
ing =E2=80=9CM=E2=80=9D above its 70 line (grossly overbought) tells the an=
alyst extreme buying pressure which most often results in later price highs=
But like all general rules not always. Where =E2=80=9CM=
=E2=80=9D occurs in the EW cycle as pointed out here is important with resp=
ect to higher price. The exact opposite of these observations occur a=
t lows and =E2=80=9CW=E2=80=9D below the 30 line.

=

Weekly chart=
traces an entirely different 5 wave impulse pattern to Wave 5 high and is =
further confirmation of that high in the daily.

Comments;

I only trade equities using EFTs and am =
interested in the NASDAQ since it is generally the leader of down or up cyc=
les and thus use the charts for that purpose.

Trades are based =
on conclusively established objective facts which document price/RSI =
location within the EW cycle. RSI measures the internal strength or w=
eakness of a security and therefore conveys the most valuable information a=
bout price action.

=
font>

Wave one is almost always the most difficul=
t wave to recognize in real time. Why? Many traders=
erroneously believe Wave 1 is just a retrace in an ongoing price move high=
er or lower ( in this example higher). Those misguided bulls are buyi=
ng waves a and c believing that price will exceed the previous =
price high at Wave 5. Wave 1 often is not very long because the=
mistaken bulls aggressively buy that retrace. Once a fra=
ctal high in the daily period establishes Wave 2 high (3 wave only) bulls s=
top their efforts to force price higher and wave 3 begins in earnest.

I assert that RSI and fractals are without any reasonable doubt the=
most accurate and capable oscillator with respect to EW and divergences id=
entification in the hope that some analyst will challenge this contention.&=
nbsp; If I am wrong in this respect I welcome others input. The=
only other indicator which does not violate the rule against multicollinea=
rity is MACD when used with RSI.